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Canadian energy company disposal not an option, says Li, as growth potential outweighs losses from 3G operations

Hutchison Whampoa chairman Li Ka-shing is adamant that Canadian oil venture Husky Energy is not for sale, despite persistently high oil prices that are  flirting with US$70 per barrel.

Hutchison relies on asset disposals to offset losses in the group's third-generation (3G) mobile  operations but Husky will not be among them, especially as production capacity expands and vast oil sands remain untapped.

'We have no plan to sell our investment in Husky and there is no need to do so. I personally have a 36 per cent to 37 per cent stake in the company and also have no intention to sell,' Mr Li said yesterday. 'The company has very good growth potential in terms of productivity.'

Husky's White Rose project off Canada's east coast was expected to begin production  this year and add 67,500 barrels per day in capacity when full output is achieved. The unit  produces about 308,900 barrels a day.

Market watchers said Hutchison's need for cash was less urgent as the conglomerate's 3G business neared break-even.

The Italian 3G business is expected to break even on an earnings before interest, taxes, depreciation and amortisation (ebitda) basis this month - a milestone that has come earlier than expected for several market watchers. The accomplishment should also support  prospects for the initial public offering planned for later this year.

The group's 3G business also remains on track to achieve ebitda break-even before the end of the year.

CSFB analyst Peter Hilton said: 'They are clearly out of the hole. The question in the long term is just how much better will it get?'

First-half operating losses from 3G narrowed to $10.62 billion from $14.29 billion, thanks to a favourable $9.4 billion one-time item.

Mr Hilton was not surprised that Hutchison wanted to hang on to Husky. 'They don't think the market has fully valued its reserves, particularly the oil sands. Secondly, they don't need the cash.'

He said the key point  from yesterday's results was that Hutchison looked ready to benefit from its US$25 billion bet on a mobile-phone technology many doubted three years ago. 'To be able to turn this around on that scale is pretty meaningful for the company.'

Mr Li was pleased with the progress. 'Our group is happy for our 3G business. We're also confident about the  future. If our 3G losses continue to grow, the guys sitting beside me have to cut their bonuses,' he said, referring to group managing director Canning Fok Kin-ning and to his son, Victor Li Tzar-kuoi.

Hutchison has 9.41 million 3G customers globally, up from 8.08 million at the end of last year.

Revenue in the 3 Group markets - Britain, Italy, Australia, Austria, Sweden and Denmark - was $17.25 billion, up 291 per cent. Data accounted for 23 per cent, up from 20 per cent at the end of last year.

But some of the numbers gave market watchers pause for thought, in particular a decline in average revenue per user (arpu), from Euro52.43 ($501) per month to Euro43.11.

Hutchison said this was due to an expanding customer base and had been expected: late adopters typically spend less. In addition, the company reportedly told analysts in a separate briefing that arpu had climbed in June and July.

Although subscriber growth in Britain appeared sluggish - just 193,000 customers were added, bringing the total to 3.21 million - this was due to the elimination of pre-paid accounts of inactive users, which was expected to be a one-time event.

Some market watchers  were concerned before the results that customer churn rates would climb due to competition from the likes of Vodafone Group in Britain and Telecom Italia Mobile in Italy.

However, that fear proved unfounded. A reported churn rate of 2 per cent was less than the industry average.

Moreover, the group's customer mix improved with contract  customers accounting for 37 per cent of  customers compared with 36 per cent previously. The improvement was most dramatic in Britain, where they  accounted for 53 per cent of  customers, up from 45 per cent.



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